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When you’re trying to understand if you’re financially prepared for retirement, it’s important to evaluate your current situation and look at four areas:

Assets

Liabilities

What Counts Toward Retirement and What Doesn’t

Forms of Income

In this article we’ll look at how to evaluate your liabilities as well as what counts toward retirement and what doesn’t.

Liabilities

Liabilities. You need to know exactly what you owe and what kind of interest they’re taking you for. Again, some of you will have this information at your fingertips and others will need to do a bit of digging. Make a note of the interest rate being paid alongside the amount owed. This can be the real shocker. If you don’t know what interest you’re being charged, find out! It’s your money being flushed down the financial commode. Also, any back taxes owed need to be allowed for.

Think of the following:

Home mortgage(s)

Second mortgage(s)

Home Equity Line of Credit

Car payment(s)

Loan payment(s)

Student

Personal

Bank

Etc.

Credit cards

Back Taxes

Etc.

IMPORTANT: Make a note of the interest rate being paid alongside the amount owed. This can be the real shocker. If you don’t know what interest you’re being charged, find out! It’s your money being flushed down the financial commode.

What Counts Toward Retirement and What Doesn’t

Does Aunt Clarissa’s china set get included? How about the penny collection Uncle Jed has willed you which he swears has the copper one worth a bundle? Unfortunately not. These get relegated with the lottery tickets and Publisher’s Clearing House Sweepstakes entries.

What counts toward retirement are those assets you can turn into an income.

A careful and realistic assessment of what you’ll actually use for retirement is what you need. Later, I’ll cover whether or not you want to leave an inheritance and how much you’d like it to be.

The key is to include in your retirement plan assessment those assets which at some point can provide you with an income.

I believe that you should consider that your primary home is not a retirement asset and shouldn’t be considered one. Can you sell it, downsize and use the excess for income? Sure, and I cover those options later. But let’s see where you can go while keeping your home intact. It’s where you live, after all, and should be a last consideration for retirement assets.

Many people pay off their primary mortgage when they retire. If that’s not you then we’ll allow for that in the expenditure area. Stock options are valuable but can be a moving target. The value changes daily based on the underlying price of the stock. But they could be exercised one day and need to be included with an estimated value.

In most retired households social security payments alone count for the majority of retirement income. If you don’t know what you’re eligible for, look for that greenish piece of paper they send you every year that you either filed and never looked at, or just threw away. It estimates what the government is going to pay you from all the taxes you’ve been giving them all these years. You can go here to request the form. Or, you can find out the amount using the Social Security Department’s online benefit calculator:

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